Decomposition of GDP growth in European countries; different methods tell different stories

Henk Kranendonk and Johan Verbruggen

No 158, CPB Document from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: The composition of economic growth can be analysed in two different ways. In the 'traditional method' for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this 'import-adjusted method' is more complex than the 'traditional method', it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates.The methodology for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six individual European countries and the euro area, the paper shows that applying the alternative methodology provides rather a different economic story.

JEL-codes: C67 O40 (search for similar items in EconPapers)
Date: 2008-01
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Citations: View citations in EconPapers (6)

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